Vice President of the European Commission responsible for Competition Policy

Reviewing the Commission’s Regional aid guidelines

Open Days – 10th European week of regions and citiesHigh level seminar on Competition, State aid and regional development/Brussels

11 October 2012

Ladies and Gentlemen:

I thank my colleague Commissioner Hahn for inviting me to take part in this seminar. Today, I would like to give you an update of our current review of the Regional State aid guidelines.

The new Guidelines will be in place months before the next Multiannual Financial Framework comes into force in January 2014 and for the following seven years.

It is more important than ever that we coordinate our work with Commissioner Hahn and with his proposals for the Structural Funds to tackle our current challenges: the need to face a deep crisis, new risks for territorial cohesion, and serious limits to most public budgets – including our own.

The public subsidies in support of investments in the disadvantaged areas of the EU can make a difference in this context.

We have seen examples in Ireland, where the pharmaceutical industry made large investments, and in Poland and other countries that joined the EU after 2004 with similar ventures by household electronics giants.

However, many other elements can better explain investment strategies; for instance, a skilled workforce, the level of taxation, the quality of infrastructures, and a pro-business regulatory environment.

This is why we need to ensure that subsidies go only where they can tip the balance and trigger new investment and job creation.

The new Regional aid Guidelines are discussed in the context of the State aid modernisation initiative. As you probably know, this year we launched an overhaul of our entire State aid policy with three main objectives in mind:

Supporting growth in line with the main objectives of the Europe 2020 strategy and – in the process – helping EU governments increase the quality of public expenditure;

Giving priority to the State aid cases that have a significant impact on the internal market; and

Streamlining our decision-making.

Let me tell you how our review will translate these principles into actual policy orientations for regional aid.

First of all, we need to bring our policy in line with the developments on the ground. I am happy to report that the main change since 2005 – when the existing guidelines were adopted – is that the gap between Europe’s richest and poorest regions is narrowing.

Although inequalities still remain, between 2000 and 2007 the less developed countries in the EU posted healthy growth rates, with an average of over 4% per year.

At present almost one European in three lives in least developed regions; thanks to the catching-up process, that proportion will fall to about one in four over the next period.

How are we responding to these changes? We are working on three main areas.

First, government support should focus where it has the most potential to make a difference, helping the poorest regions to narrow their gap with the EU average.

The development of regions can be achieved through several policy means. Regional aid should remain the exception and the coverage of assisted areas should be limited to what is necessary to offset regional disparities.

Second – given the current differences in budgetary capacities – it is particularly important to ensure that aid is reduced to the minimum needed, so that EU countries and regions can all compete on an equal footing to attract and retain new businesses.

As regional disparities in Europe have narrowed in the past decade and budgetary constraints are tight, I will propose lower aid intensities except in the worst-off regions.

Third – and in line with the broad objectives of the State aid modernisation initiative – I believe that we should focus our control on the most distortive subsidies.

This means that we will reserve a simpler treatment for smaller cases – in particular for SMEs – and possibly that fewer categories of aid will have to be notified to the Commission.

As I said earlier, the review process is under way. We are fine-tuning our proposal on the basis of the replies we received from the public consultation that we held between January and April.

However, I can anticipate the main elements of the reform starting with an increased focus on incentive effect for all measures. Aid can only be approved when it has the potential to change the behaviour of recipients.

Regional aid can be considered compatible only if it gives an incentive to decide to invest in an assisted region or if it can determine the location of an investment.

Because of these regions’ disadvantages, aid might be necessary to compensate the low profitability of an investment or the extra costs of locating investments there.

As a consequence, we will not approve windfall benefits for companies that would have invested in the assisted region even without the aid.

We can’t afford to waste scarce public resources in the present situation and we can’t afford the competition distortions and the harm to growth opportunities that such wasteful subsidies would create.

It is not only important to establish that the aid has an incentive effect, but also that this aid will contribute to our common objective; that is, the economic development of regions across the EU. In other words: it needs to be well designed.

Good subsidised projects are those that can contribute effectively to a region’s development strategy and we know that the impact is higher in the least developed regions.

Given the evidence we have reviewed about the general ineffectiveness of aid to large companies in more advanced regions, I believe that, on balance, regional investment aid to large companies should be allowed only in the least developed regions – the so-called "A regions” in State aid terminology.

However, EU governments remain free to grant aid to large firms in other regions provided it meets the Europe 2020 objectives, such as research, development and innovation, and environmental protection.

Such aid would have to comply with the conditions of the respective sectoral State aid guidelines.

These subsidies encourage innovation, competitiveness, and productivity gains beyond the compensation of regional disadvantages. I am even prepared to discuss the possibility of higher aid intensities for such objectives in assisted regions.

The last two measures that we are thinking to include in our new guidelines have to do with how government support is managed and evaluated.

One proposal would be to ask EU national and regional authorities to adopt high standards of transparency for the amounts and the beneficiaries of their support.

Such a general transparency requirement would actually mirror current practice in Structural Funds and Agricultural Funds.

In times of austerity and budget cuts, I think that public authorities should make an extra effort to keep competitors and citizens informed on how they spend taxpayers’ money.

Finally, we are considering including evaluation systems for large support measures – including schemes – to make sure that the aid does bring the intended results.

I can see that certain countries have already put in place systems of evaluation of public expenditure. Once again, I think that in these difficult times it is a good thing to foster a culture of accountability.

Ladies and Gentlemen:

These are the main principles and measures that we are considering in our review of the Regional State aid guidelines.

The revision process is advancing well and I am confident that we can send a draft consultative text to the Member States before the Christmas break and publish it on our website.

The process will be finalised next year. In February, we are planning to meet the Member States to discuss the draft guidelines and in May – if all goes well – the new guidelines will be adopted.

Until then, I count on the representatives of the regions to participate actively in the debate to refine and enhance our review. I would like to thank you in advance for your cooperation and for your contributions.

The main idea that I would like you to take home from our conversation today, is that now that public resources are becoming a scarce commodity, growth in the regions that are most in need can only be the result of wise spending decisions.

We all want to preserve the hallmark of our united Europe even during these uncertain times.

The spirit of our reform is to make sure that the EU continues to be the formidable convergence machine it has been for over 50 years.

Thank you for your attention and thanks again to Commissioner Hahn and his team.